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Long-Term Vs Short-Term Mutual Fund Investment: What to Consider?

Knowing the differences between short-term and long-term investments can help you create your investing strategy. This is usually the primary step to choosing investment securities that align with your financial goals. Read on to learn about long-term and short-term investments and how they differ. 

What Are Long-Term Investments?

You can buy and hold them for like ten or more years. Such an investment strategy is ideal for long-term goals like saving for higher education to be pursued abroad. If you can keep your money invested for several years before making withdrawals, you can take on a higher risk. In this case, you can consider equity schemes like the best ELSS mutual funds. An extended period can help your investment substantially recover from short-term market fluctuations. However, that cannot be promised. An investment might lose or gain value over the long term. 

What Are Short-Term Investments?

You can purchase and hold them for a shorter period, like three or fewer years. This kind of investment fits financial goals you need to meet shortly, such as saving to buy a vehicle. You can meet such a goal with the help of liquid fund returns. If you opt for this investment strategy, you should consider investment avenues with a lower market-related risk. Nevertheless, seeking a lower risk cannot promise a sustained principal value or gains. Common examples of short-term investments are treasury bills, government bonds, and certificates of deposit. 

Differences Between Long-Term and Short-Term Investing

The investment horizon is the period after which you start withdrawing your investments. Long-term investments are usually held for ten or more years. Examples are equity and hybrid funds (such as the best ELSS mutual funds). On the other hand, short-term investments are generally held for three years or less. Examples are liquid funds and ultra-short-term funds.  

  • Market risk: It is the possibility that the value of assets exposed to the market may go down. The amount of risk that an investment has is based on the following:
  • The type of investment
  • Your investment strategy

Discussing market risk with a financial advisor before you make a decision is a good idea. 

  • Investment goals: You typically need years or sometimes decades to reach long-term investment goals. An example of such a goal is building a retirement corpus. On the other hand, you can often meet a short-term investment goal in months or a few years. An example of such a goal is saving for home renovation, a wedding, or a vacation. Returns from liquid funds or short-term funds can help fulfill these goals. 

Conclusion

Consider the above factors to choose between long-term and short-term investments and invest using a trusted mutual fund app.


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